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Traveler's Checks

From a Short-Tempered Exec, the Traveler's Check Was Born


The traveler's check was born of annoyance. According to company lore, sometime in the late 1880s, J.C. Fargo, the often impatient president of American Express, made a journey to Europe. For money, he relied on the same financial routine that European travelers had employed since the Renaissance: He carried a letter of credit from his bank and presented it at banks on the Continent when he needed cash.

But sometimes the transactions took half an hour or more, and Fargo, known for his short temper, came home with an assignment for his underlings.

Summoning a mid-level manager named Marcellus Berry, he directed Berry to devise a product that would improve on the letter of credit. Berry came back with the traveler's check. In 1891, the first checks were sold.

By 1913, sales had reached $32 million, and traveler's checks had gained a reputation for reliability that saw them grow through the economic uncertainties of two world wars. By 1945, sales were $522 million. In 1958 (when the American Express card was unveiled) check sales reached $1.6 billion.

By 1990, as the company's Travel Services network grew and traveler's checks were offered in more and more currencies, global sales had reached $25.3 billion.

Not only was the security of the traveler's check attractive to skittish Americans, a traveler's check was a great income-producing device for a financial institution. Customers often pay a 1% fee to a retailer to buy the checks (although auto clubs, credit unions and many banks offer them for free).

Sometimes commission charges--as high as 10% in particularly touristy spots--are tacked on when cashing checks. And for the days, weeks or months from the original sale and the purchase or cashing-in of the checks, the issuing institution is holding your money, meaning the company is basically receiving an interest-free loan from every customer who buys a traveler's check.

And a lot of dollars are afloat out there. At the end of 1995, American Express reported $5.7 billion in outstanding travelers checks.

"Traveler's checks are the sweetest deal anybody ever had--for the company," says USC's J. Kimball Dietrich, an associate professor of finance and business economics.

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